A sole trader extracted the following balances from their accounting records at the end of… — JAMB UTME

A sole trader extracted the following balances from their accounting records at the end of the financial year:

- Sales: $\text{₦}90,000$
- Opening Inventory: $\text{₦}15,000$
- Purchases: $\text{₦}50,000$
- Carriage Inwards: $\text{₦}4,000$
- Carriage Outwards: $\text{₦}6,000$
- Closing Inventory: $\text{₦}19,000$

What is the gross profit for the period?

$\text{₦}40,000$ Answer
B
$\text{₦}34,000$
C
$\text{₦}48,000$
D
$\text{₦}21,000$

Answer

The gross profit for the period is

\text{₦}40,000

The gross profit of

\text{₦}40,000

is obtained by deducting the cost of goods sold (

\text{₦}50,000

) from sales revenue (

\text{₦}90,000

). Cost of goods sold includes opening inventory (

\text{₦}15,000

), purchases (

\text{₦}50,000

), and carriage inwards (

\text{₦}4,000

), less closing inventory (

\text{₦}19,000

Step-by-Step Solution

Calculate Cost of Goods Sold (COGS)

\text{COGS} = \text{Opening Inventory} + \text{Purchases} + \text{Carriage Inwards} - \text{Closing Inventory} = \text{₦}15,000 + \text{₦}50,000 + \text{₦}4,000 - \text{₦}19,000 = \text{₦}50,000

Carriage inwards is a direct expense added to purchases, while closing inventory is deducted to determine the cost of inventory sold during the period.

Calculate Gross Profit

\text{Gross Profit} = \text{Sales} - \text{COGS} = \text{₦}90,000 - \text{₦}50,000 = \text{₦}40,000

Gross profit is the difference between total sales revenue and the cost of goods sold.

Key Concept

Trading Account and Gross Profit Determination

Question

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